Helping lawyers create more productive, profitable and enjoyable law practices

November 22, 2006

Tomorrow is Thanksgiving here in the U.S. - the day specifically set aside for us to take the time to count our blessings and remember all of the good things that have happened in the past year, and all that we have to be grateful for. In my own experience, Thanksgiving also often becomes a time to reflect on all of the difficulties over the past year, and to be grateful for the people that were there to help and support me, both personally and professionally.

The first Thanksgiving in America was held to celebrate the harvest and the Pilgrims' survival of their first year in what they called the New World. But the Pilgrims may not have survived were it not for the Native Americans who taught the Pilgrims about the native plants, showed them how to tap the maple trees for sap, and helped them plant and fertilize their crops.

As lawyers, we tend to want to 'go it alone' much of the time, constantly trying to prove ourselves and show that we can work harder and longer than anyone else. But that leads to frustration, burnout and what I call 'meltdown.'

This Thanksgiving, while you're celebrating with family and friends, take note of whether you feel you haven't spent enough time during this past year with those that are the most important to you. Pay attention if you have the urge to try to sneak some work in between the turkey and the pumpkin pie. Reflect, for once, on all that you have accomplished and all that you have to be grateful for. And if you're feeling overwhelmed or on the verge of a breakdown, resolve to find others to help you this year, so that next year you can give thanks for a more balanced life.

The Pilgrims accepted help from the Native Americans who knew the land and the native plants better than the Pilgrims did. Nobody is good at everything. Find out what your strengths are and what you love to do in your practice, and find ways to get help with the rest, whether that's delegating to existing staff, outsourcing some work, finding a coach, mentor or consultant, or setting up strategic alliances.

Finally, I'd like to thank all of those who have helped me over the past year, including those who have read, commented on and linked to this blog. I am constantly amazed and inspired by the generosity of those I've met through the internet, some of whom have become not only professional clients and colleagues, but true friends.

November 20, 2006

According to the opinion, a Task Force was appointed in 2004 to study, review and recommend changes to the advertising rules for lawyers in Florida. The result of the Task Force was a number of proposed changes which were then submitted to the Board of Governors of the Florida Bar. Apparently, the proposals were published for comment, but few comments were received.

The opinion first discusses certain communications that the Bar proposed should be exempt from the advertising rules, and agreed that communications between lawyers and their family members should be exempt, but requested further information as to why the Bar recommended that communications between lawyers and communications with current and former clients should be exempt from the advertising rules, and deferred those exemptions. Presumably, then, at present, lawyers should be extremely careful to ensure that communications with their clients and former clients, and even communications with other lawyers, conform to the Florida rules.

According to the opinion, in Florida, a nonlawyer spokesperson must identify him or herself as a spokesperson and specifically disclose that he or she is not a lawyer practicing with the firm. The court rejected a proposal that this requirement be used only when it was not already apparent from the context of the advertisement that the person is not a lawyer.

The court specifically mentions that a special committee has been appointed in Florida regarding computer accessed communications, including websites and e-mail, and therefore the court declined to address internet advertising. Florida attorneys should pay particular attention to the committee's recommendations regarding this issue.

Finally, the court recommended that the Florida Bar undertake additional measures to study lawyer advertising, including soliciting public evaluation and comments on the issue.

The appendix to the opinion contains the Florida rules. Some that may be particularly important to lawyers are:

The prohibitions against the use of testimonials and the use of statements describing or characterizing the quality of a lawyer's work in unsolicited communications

The prohibition against advertising for legal employment in an area in which the lawyer or firm does not currently practice law (does this mean that if a lawyer is new or doesn't have a current client in that practice area, the lawyer cannot advertise for clients in that area, even if the lawyer is trained to practice in that area?)

The ban on the use of the terms "specialist" and "expert" if the lawyer is not specifically certified in that area

The prohibitions on the use of certain visuals, including illustrations (see the comments regarding this issue - an example was used that a lawyer could not use an illustration of a fist, which would, according to the comments, imply a result, which is prohibited)

The requirement that certain unsolicited communications contain the word 'advertisement' in red ink on both the first page and the envelope

The requirement that copies of advertisements be submitted to the Florida Bar for evaluation - accompanied by a fee (for TV and radio, this must be done 15 days in advance of the advertisement's air date, and for other advertisements, filing is prior to or concurrent with the original dissemination)

Not all of these regulations are new, and as always, I encourage all attorneys to become familiar with the rules governing advertising in the states in which they practice - particularly in light of the fact that many communications that lawyers may not generally consider to be advertising are increasingly becoming defined as 'advertising' or 'solicitation' in many states.

Finally, it's suprising that there was so little commentary provided by members of the bar to the proposed changes to the advertising rules in Florida. If lawyers don't express an interest or provide opinions with regard to how these rules affect them, their practices and their clients, differentiating themselves will become more and more difficult as the advertising rules become more and more restrictive.

November 14, 2006

The November 6, 2006 issue of Law.com's Small Firm Business carried an article entitled, "Bonus Brought Lawyer's Hourly Rate to $1500," from the Connecticut Tribune. The article discusses a grievance brought against a Connecticut matrimonial attorney for taking a $300,000 bonus as a result of a five day mediation. The claim is that the lawyer's fee was 'unreasonably excessive.'

It's cases, and articles, like this one that make lawyers wary of changing from a billable hour model to a value billing model. Many lawyers say that they can't use value billing because, in proceedings like this one, the courts determine the reasonableness of the fee by using criteria including time spent to achieve the result. Indeed, adding the lawyer's bonus to his 'hourly rate' and then recalculating the rate points to the problem that lawyers and the courts place too much emphasis on hours, rather than on the value the client received.

One of the problems lawyers encounter when considering value billing arrangements is the understandable fear of grievances, magnified by disciplinary rules that base the reasonableness of fees on factors including time and labor involved in a particular matter.

According to the article, the matrimonial attorney in the story allegedly violated Rule 1.5 of the Connecticut Rules of Professional Conduct, which states in part that a lawyer may not charge or collect an 'unreasonable' fee, based on factors such as, "time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly."

I don't know whether the fee in this case was actually unreasonable or not. But the case shouldn't necessarily hinder lawyers from seeking to change from an hourly billing model. According to the article, the client was required to wire the $300,000 bonus to the lawyer toward the end of a very contentious divorce mediation, or the lawyer would walk out. (Notably, the lawyer claims this is not the case).

The lawyer claims that he earned the bonus because he was able to accomplish his client's main goals in the divorce proceeding - namely, allowing the client to keep his $30 million business and retain ownership of the stock in that business. The lawyer also claims that his bonus was earned because this particular client, also a lawyer, was a very demanding client. The article also indicates that the client was aware that the result would have been much less favorable result if he were required to litigate the case.

The problem here may not be that the fee was unreasonable, but that the lawyer failed to manage the attorney-client relationship properly.

A review of the Disciplinary Rule reveals that, in addition to time, the difficulty of the questions involved and the skill required to obtain the result are also factors to be considered when determining the reasonableness of the fee. Further, the court only has the power to review the fee because the client was unhappy - it is only because a grievance was filed that the question is before the courts.

Could this situation have been avoided? There is no information in the article about the attorney's fee agreement or about any discussions or writings between lawyer and client regarding fees and bonuses. Specifically, how were the client's expectations managed at the outset? Was there any discussion about the scope of the lawyer's services (i.e. that mediation/trial would be an additional charge?) Was the client aware of the bonus and how it would be calculated before the mediation commenced? Did the client agree to this arrangement? Was this agreement obtained in writing?

Was saving a $30 million business worth paying $300,000? How much was it worth to the client to avoid the trial - both in possible trial costs and in the ultimate outcome? Did the lawyer sit down and discuss with his client what circumstances would entitle the lawyer to a bonus? Was the client, at one time, willing to pay a premium for the result he wanted? If so, what changed?

Billing on anything except an hourly model requires the lawyer to be exceptionally careful in ascertaining the client's wants and needs and managing their expectations up front. One of the biggest advocates of value billing, Ron Baker, sets forth the following structure for a value pricing arrangement for lawyers in his post, Hourly Billing: The Perfect Crime?:

Ascertaining customer expectations up-front

Agreeing to scope of work up-front

Using Change Orders when that scope changes

Agreeing to price up-front

We may never know whether this lawyer followed any of these steps in discussing his bonus with the client, although the article doesn't mention any such agreements or provisions within the lawyer's retainer agreement.

Litigators are the attorneys who seem to be most set against billing on any arrangement other than hourly billing or contingent fees. But alternative, ‘flat’ or ‘value’ billing can be done for litigation, too. In those cases, the fees could be established in phases, or conditioned on specific events.

You've got to give clients an idea of what it will cost if there are unforeseen circumstances - and define what those ‘unforeseen circumstances’ might include.

For example, although I’ve never practiced matrimonial law, I’ve been told by a number of matrimonial lawyers that clients will often come in requesting an ‘uncontested’ divorce. But as the lawyer begins to get involved in the case, it appears that the only thing that is truly uncontested is that the parties no longer wish to remain married – everything else, from custody to finances, to marital assets, pensions, property, and even who gets what CDs is hotly contested.

Under those circumstances, the smart matrimonial lawyer would have an in-depth conversation with every potential client specifying what actually constitutes an uncontested divorce, and quoting a fee. The lawyer should then also discuss some of the other issues that are likely to arise and clearly advise the client that any such issues that arise will increase the fee. The fee agreement should specify exactly what is included in the fee and should state clearly that any additional actions to be taken by the lawyer outside of what is specified in the agreement will require an additional fee.

Many matrimonial lawyers tell me that the cost of a divorce is often determined by what the parties do, rather than what their lawyers do, and tell them that even if they are ‘reasonable, if their spouse wishes to contest things, the cost will be higher. Lay out for them what circumstances would require a higher fee - i.e. protracted litigation, many court appearances, motions, etc.

There are ways to do litigation on a flat fee basis, or modified flat fee basis, if you set expectations properly with the client up front. The flat fee includes x,y and z, but anything additional or not anticipated by the original agreement is extra, and subject to a change order and an additional fee. Essentially, what you're doing is defining the scope of the engagement changes, the fee must also change.

For example, you could offer a flat fee for litigation that includes a certain number of court conferences, a certain number of depositions, and ‘basic’ discovery demands and responses, but specify in your agreement that anything above and beyond that is additional. Setting fees like this is a skill and it needs to be developed over time, and you will probably need to test and go through some trial and error before you get there, but I think it’s worth pursuing.

You may be surprised at how quickly clients embrace a value pricing model. As discussed in some of my other posts, clients that have any experience with lawyers are generally put off by the idea of hourly billing and the inherent conflicts it creates. Offering them a different billing arrangement in which they find out the fee before the work is done, rather than after, can have a surprising effect on the attorney client relationship.

November 06, 2006

Should I discount my fees in order to bring new clients in the door?First, I'll start by saying that if your fees are based upon value to the client, and determined on a case by case basis in consultation with each client separately, the issue of 'discounting' may never become an issue at all.

That being said, even attorneys that use billing methods other than hourly billing sometimes find themselves grappling with the issue of discounting. I have had personal experience with this, even when establishing fees with certain clients based on value to them - whatever the fee is, they want a discount. (This may be a red flag that this isn't the client to deal with).

Lawyers that have more of a 'commodity' practice may also consider discounting their fees, particularly when starting out, attempting to break into a new practice area or a new market, etc.

I don’t recommend discounting your fees. Once you ‘discount’ your fees, clients and possibly potential clients will know that you ‘can’ do the work for the lower fee, and in their mind, the discounted fee will become your actual fee. Discounting a fee for a client often brings nothing but headaches and trouble.

Whether we like it or not, most times we equate higher price with higher value. We think if something is more expensive, it must be ‘better.’ Since that’s the way most people think, discounting your fees- or charging too little - de-values the service you provide in the eyes of your clients and potential clients. Often, if the fee is too low, people will wonder what’s missing from your services or whether you’re experienced or knowledgeable enough to handle their case.

Rather than giving a discount, consider giving something extra, like a 'bonus' – throw in a free ‘something’ – free risk assessment, free additional consultation, free review of something, etc. Make it something that has value for the client but isn’t really cutting into your fees. What you offer need not even be directly related to the service that you are providing for the fee. And always be sure to articulate the value of the services that you’re providing for your client within the fee.

For example, if you want to do work for small businesses and become their ‘go to’ lawyer, you could provide a risk assessment as a ‘freebie’ as part of your incorporation/startup package (although you must still make sure that the fees you’re charging are making you a comfortable margin for your services). This kind of bonus has the added benefit of educating the client and possibly showing them the value of preventative legal representation.

Whenever you give something away for free, make sure you indicate the value of the service you’re ‘giving away.’ In other words, if you’d do a risk assessment on its own for $1000, your materials should clearly state that the package includes a “risk assessment worth $1000” or similar language.

Although I don’t generally condone discounting, there are certain times when you can discount your fees for certain clients, at specific times, or for defined purposes. But those discounts should be part of your overall marketing and pricing strategy. They should only be provided on an individual basis or for a particular purpose, and only after special consideration.

For example, you might want to take on a particular case for a reduced fee if it will be a significant case that will help build your reputation or credibility, or provide experience you would be unable to obtain under other circumstances. You might consider discounting your fee for a particular charity, cause or individual in need.

Many lawyers give discounts to clients on a regular basis without even realizing it, and without keeping control over those discounts. Are your clients paying your bills in full and on time? If not, you’re not getting the rate you think you’re getting – you’re actually discounting your fees. The client that always pays late and requires constant reminders before they’ll pay is costing you money – both in the real sense of having to wait for your fees, and in the time, effort and aggravation involved in chasing down payments.

If you determine that a particular case is worth taking for a reduced fee, or even no fee, that’s your prerogative. But make sure that you can articulate a sound business reason for giving the discount, and make sure that you’re making the decision – don’t let your clients make it for you by simply not paying.

The opinion addresses a hypothetical situation wherein a lawyer has consulted with a potential cient (PC) about an automobile accident, and received confidential information from PC during that consultation. After the consultation with PC, the lawyer receives an unsolicited email from another person involved in the accident (V). The unsolicited email contains information that could be helpful to PC's case. The opinion determined that the lawyer could represent PC and that she could use the information received from the email from V. The San Diego County Bar Association also found that in the event that the lawyer could not represent PC, the lawyer would be precluded from choosing to represent V.

Notably, the hypothetical specifically noted that the lawyer in question did not have a website or otherwise engage in advertising, and that V had obtained the lawyer's email address from a bar website. The opinion states, in part, that, "[p]rivate information received from a non-client via an unsolicited e-mail is not required to be held as confidential by a lawyer, if the lawyer has not had an opportunity to warn or stop the flow of non-client information at or before the communication is delivered."

Of course, this leaves open the question of an attorney's ethical obligations with regard to information received via email where the individual obtains the lawyer's email address from the lawyer's website or marketing materials. Also left open is the issue of how the lawyer would "warn or stop the flow of non-client information at or before the communication is delivered."

Several law firm websites contain general disclaimers, and some even include 'pop up' disclaimers when an individual clicks on a lawyer's email address. Are these disclaimers enough? What language would be considered sufficient? What if an individual obtained the address from the website, but instead of clicking on the link, re-typed the email address in their email program, thereby bypassing the disclaimer? Could someone seeking to disqualify a lawyer from a particular case intentionally send an email containing arguably confidential information that would preclude the lawyer from representing any parties in the case?

The San Diego County opinion discusses the duty of confidentiality and the nature of the privilege and asks this question: Does the content of V's e-mail, "standing alone, constitute a 'consultation' so that she is deemed a 'client' for attorney-client purposes?" the opinion notes that the attorney must have some opportunity to decline the representation. But one of the factors in determining whether the attorney had an 'opportunity' to decline is whether the attorney has, "evidenced, by his prior words or conduct, a willingness to engage in a confidential consultation with the individual."

Specifically, the opinion states,

A closer question might exist if [the lawyer] had placed an e-mail address at the bottom of a print advertisement for legal services or in a yellow page telephone listing under an “attorney” category, without any disclaimers. In these circumstances, the only inference to be drawn from listing the e-mail address is to invite prospective clients to contact the attorney for legal advice or representation, giving rise to a further inference that private information divulged to the attorney would be confidential.

This language seems to be far too broad. It seems to me that there is or should be a distinction between evidencing a willingness to engage in a confidential conversation with this particular individual as opposed to showing, by the use of marketing materials, websites, etc. that promote the lawyer's services and make the lawyer's email address available, that the lawyer is generally available for consultations.

Based upon the language in this opinion, it would seem that warnings and disclaimers would be required everywhere a lawyer places their email address. What about email addresses on business cards? If the lawyer in question provided their business card, and the card made its way to V, either directly from lawyer at some time prior to the accident, or through V obtaining the card through other means, would the lawyer be precluded from representing both PC and V in that case? Should lawyers be required to note on all of their marketing materials, brochures, articles, etc. that confidentiality is not guaranteed when sending an email to the attorny?

This opinion raises many questions, not all of which are discussed here. And the opinion is based on California law. But all lawyers should take heed of these issues. They may lead to even more restrictions on the ways that lawyers build their businesses.

November 02, 2006

I find it interesting that lawyers seem to have such a hard time wrapping their minds around the concept of setting flat fees for their services, but seem to have no difficulty with the idea of an hourly billing rate. After all, how is the lawyer determining what the hourly rate should be? Some lawyers charge $150 an hour, and some charge $400 an hour. What are those rates based on?

Lawyers think that under an hourly system we’re charging only based upon something that's easy to quantify - the number of hours required to complete a task, but that’s an illusion, because the hourly rate must be set first - and that rate must be based on something else.

Presumably, the lawyer’s experience, results and training all factor into the equation when setting an hourly rate. Lawyers that are in higher demand can command higher rates. Lawyers that establish a reputation for themselves and their firms can command higher rates. Lawyers that practice in specific geographic areas may be able to command higher rates. But the only reason that any of these factors affects the ability to charge a particular fee is because the client believes that they add value to the engagement. Therefore, MOST importantly, lawyers that can articulate the benefit to their client can command higher rates.

The big problem with hourly billing is that the length of time it takes to complete a task isn’t related in any way to the value of the service that’s provided. Indeed, it can reliably be argued that most clients would prefer that their legal matters be completed in less time – and therefore that a lawyer who can complete the matter in less time should be paid more.

The same variables that go into determining an hourly rate will factor into a flat fee scheme - although they may be weighed differently for different clients. One of the biggest differences between using flat fees or value-based billing and hourly billing is that the fee isn’t dependent upon the length of time it takes to complete a certain matter or task. As others have said, under an hourly system, the perception is that you're selling time. Using alternative billing is one way to return the focus to where it should be - selling your expertise.

Pricing is a skill - learn to articulate valuePricing, or setting fees, is a skill that takes time to develop. There is no one ‘right’ way to price your services, and there are many variables that will affect how you price your services. In order to price effectively, you must be able to articulate the unique value your firm brings to its clients – what does your firm provide that no one else does? What benefits is the client receiving, and how important are those benefits to the client?

Once you can articulate the value your firm provides and the benefit the client will receive as a result of your legal representation, you’re on your way. But you’ve still got a lot of work to do before you can quote a fee to a client.

Getting detailed information and setting expectationsMuch of the reason lawyers still charge by the hour is because they don’t like change, and because billing in any other way requires a lot more thinking and a lot more work up front. It requires more of a conversation with clients about their expectations than most lawyers are used to.

Often lawyers take on a case without fully investigating or exploring not only the facts surrounding the matter, but the client's specific expectations and values. One advantage of changing the pricing structure is that these longer and more detailed conversations will likely help lawyers pre-qualify clients better, alert them to potential problems earlier, and help them weed out ‘nightmare’ clients before they become a headache.

If you’re experienced in handling a particular type of matter with a particular type of client, you should have a good idea which variables will make an engagement more complicated, more stressful for you and for the client, which ones require specific skills or expertise, etc. You should also have a good idea which variables are important to which types of clients. All of those variables will be reflected in the price you quote for those services. This is very likely to differ from client to client.

You have to do a good bit of digging and really fleshing out the issues with every new client at the outset. That way, you can get a good idea what you might be up against. But even then, you need to let the client know that there are other issues which may arise which would affect the fees - including the attitude and behavior of the other side, which is often very different than the client's initial perception. Provide your potential clients with examples of the kinds of variables or contingencies that are likely to increase (or decrease) the fee.

Some pricing changes are required due to the client’s failure to cooperate, failure to provide information, or a client not being honest with the attorney. Your fee agreement should clearly state that such changes are not considered within the scope of the estimate (and consider your ability to end the engagement on those bases as well).

Frequently, lawyers are afraid to quote clients a ‘high’ price for fear that the client will automatically reject them. But the reality is that lowballing a client and estimating low on purpose creates a poor attorney-client relationship and is bound to mean more time and money spent chasing clients for fees later. Clients that are truly shopping only on price are not the best clients to have anyway. If you can articulate the value that supports your fees, the better clients will be willing to pay for it. And setting the fee up front eliminates the need to chase clients later to get them to pay your bills. Lawyers that quote clients a low fee without explaining the scope of the work that is encompassed in the original fee, or variables that can increase the fee, are setting themselves up for trouble.

Clients are willing to pay a premuim if they perceive that they are receiving value in exchange for their money. If you can pinpoint what the client values, articulate your services in terms of those values, and deliver on the promises that you make, you will find that clients are willing to pay up front for your services.

Many lawyers assume that they can’t account for variables or unforeseen circumstances if they use a fee structure other than billing by the hour. But with a little planning, you can account for those variables.

Using value billing or ‘flat’ fees doesn’t have to mean that you quote one price for the entire engagement at the outset when you may not have complete information. But there are a number of ways to overcome this obstacle.

Some methods for pricing:

1. Provide an estimate or price range, giving a high and low based on your experience (but be careful to specify that this is just an estimate, and be sure you've given yourself some 'wiggle room' on the low end - and be mindful that some clients will assume that the low is what they are going to pay);

2. Price the project in stages, so that you can adjust your fees as the matter progresses and you have more information;

3. Be very specific in your initial fee agreement about what your price quote covers, and provide examples for clients of items that will require an additional fee. For example, if you are handling what appears to be a ‘routine’ litigation case, let’s say that you quote the client a fee of $5,000. The fee is based on the information provided by the client at the outset for a matter that appears to be routine – only two parties, no non-party witnesses, limited discovery, etc. However, as the matter progresses, if additional parties are added to the suit, additional or extensive discovery or investigation becomes necessary, your fee will be adjusted accordingly.

Remember also that value pricing means pricing your services based upon the value of those services to the client, first and foremost - so you'll have to articulate the changes in your fees in terms of the benefits to the client and what the client thinks is important.

Legal Ease Consulting, Inc. Allison C. Shields

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